Government, Law, and Real Estate

Land bank sale may not have violated county policy

November 24, 2012
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Kent County Corporate Counsel Dan Ophoff was set to deliver his opinions on a key matter to the county’s Land Bank Process Subcommittee a few weeks ago, until the panel’s members decided to suspend their meetings for the foreseeable future because of a pending lawsuit.

So, Ophoff wasn’t able to disclose his legal interpretations on whether the county violated its own policy and state law when Kent sold 45 tax-foreclosed properties to the Kent County Land Bank Authority prior to the annual public sale this summer. That transaction riled some in the local real estate industry to the point that they decided to became plaintiffs in a case that alleges the county, the land bank and Kent County Treasurer Kenneth Parrish breached both.

The subcommittee decided to stop meeting because the issues members are discussing publically are directly related to the legal complaint the county is facing. Commission Chairwoman Sandi Frost Parrish put the panel together to determine how the county should handle future property sales to the land bank and assigned commissioners Tom Antor, Candace Chivis, Dick Vander Molen and Michael Wawee to make a recommendation.

“The things that are related to the lawsuit are the things the subcommittee is dealing with,” said Daryl Delabbio, county administrator and controller.

As far as the county’s policy on property distribution is concerned, a layman’s take could easily be that commissioners did not violate it when they approved the sale to the land bank. A provision in the policy allows the board to sell properties to a public entity or a utility without requiring a competitive bid if a majority of commissioners agree to do so. KCLBA is a public entity that is independent of the county and is empowered by state law to purchase properties from a governmental entity.

A reading of the state statute isn’t nearly as clear, however. Although the law allows a land bank to buy tax-foreclosed properties from a governmental unit, such as the county, it also says a government can’t transfer a foreclosed property until after a property has been offered for sale or through another transfer method.

The statute doesn’t name a specific sale, such as the yearly public auction held by the Treasurer’s office. Most properties are offered for sale on the open market before reaching foreclosure status, which takes three years to attain, and some might argue that meets the law’s requirement. Nor does it explicitly require a government to be the seller of a property.

Another potential impacting factor, however, comes from a state agency. The Michigan Land Bank Fast Track Authority has ruled that a land bank should consider taking possession of a property prior to a public auction under three circumstances. One is when a land bank has an “end user” for a property. The second is when a property’s in a reinvestment area or development district and buying it would support stabilizing an area and its revitalization plan. The third is when a property doesn’t need substantial cleanup, is available for immediate resale and will generate operating revenue for the land bank.

Before the suit was made public, the subcommittee learned there hadn’t been a single report statewide regarding problems that arose from a county having sold tax-foreclosed properties to a land bank prior to an auction. Members also learned at that August meeting that the Genesee County Land Bank has free rein to select the properties it wants to buy before that county holds its public sale.

Kenneth Parrish told the panel that 16 percent of the properties purchased by private investors at the auctions in 2007, 2008 and 2009 went back into tax foreclosure in 2010, 2011 and 2012. Subcommittee members tossed about the idea of using 16 percent as a benchmark for the number of properties the land bank could buy from the county before the auction is held.

When KCLBA purchased 45 properties for $420,000 from the county in July, the organization sold 21. Nineteen went to nonprofit housing developers and two to a township. The land bank kept 24 for its own use. KCLBA Executive Director Dave Allen told commissioners the properties the bank kept for development amounted to 7 percent of the 309 on the foreclosure list.

According to the state’s land bank authority, which was created in 2003, there are 33 land banks in Michigan, and almost all have been established by counties.

George Buth, 17th Circuit Court judge, has been assigned the case. At last report, a court date hadn’t been set.

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